Investors are trying to navigate a wild array of headwinds in the markets today. Persistently high inflation is old news now, more or less baked in, and the Federal Reserve is expected to continue hiking interest rates, perhaps into early next year, further tightening the cost of money and credit, even at the risk of a full-blown recession. On top of everything, there’s an election coming up, and we’re more likely than not going to see increased deadlocks in Washington should the Congress change hands and take an oppositional role versus the Biden Administration.
All of this makes it hard to find the opportunities in the stock market – and there are always opportunities.
Finding them is the trick, though. One clear sign to look for is insider buying, large stock purchases by corporate officers – CEOs, CFOs, Board members – who hold positions of responsibility, accountable to stockholders and Directors for bringing in profits and boosting share value. These officers don’t trade their own companies’ share lightly, so when they do, investors should take note.
We’ve started following corporate insider trades, using the Insiders’ Hot Stocks tool at TipRanks, and we’ve picked out two stocks that insiders are doubling down on. We’re talking about ‘informative buys’ in the hundreds of thousands of dollars at a time – or more. Here are the details on these stocks, along with some recent comments from the professional analysts.
Enviva Inc. (EVA)
The first stock we’ll look at is Enviva, a ‘green’ energy company specializing in the manufacture and marketing of processed biomass wood pellets, for use as an industrial fuel capable of replacing coal. Processed wood pellets hold more concentrated energy than natural wood, are cleaner burning than coal, and make use of the lumber industry’s waste products, wood chips and sawdust that would otherwise be thrown away.
Enviva operates in the Southeastern US, where it has production facilities in Virginia, the Carolinas, Georgia, Florida, and Mississippi capable of producing 6.2 million metric tons annually of biomass wood pellets. Enviva exports the bulk of its products, mainly to power generation facilities in the UK, EU, and Japan.
A few other numbers will give the reliability and scale of Enviva’s business. As of August 3 this year, the company’s average weighted contract had 14.5 years remaining, and Enviva could boast of a $21 billion revenue backlog. Both metrics bode well for future performance.
Enviva will release its 3Q22 results early next month, but we can look back at Q2 for a snapshot of where the company stands now. The second quarter print showed $296.4 million at the top line, the highest in over two years, up 3.6% year-over-year, and beating the forecasts by more than $15 million. The company’s adjusted EBITDA came in at $39.5 million, well above the $25.7 million of the 2Q21 report.
These sound results back up Enviva’s dividend, which was declared and paid in August at 90.5 cents per common share. The annualized rate, $3.62, gives a yield of 7.1%, more than triple the average dividend found in the broader market, and high enough to provide some protection against high inflation.
On the insider front, sentiment is ‘very positive,’ and two of the company’s directors, among others, have made substantial purchases in recent days. John Bumgarner’s two most recent EVA buys have totaled 18,288 shares, for which he paid over $932,800. The second set of recent buys was even larger – Jeffrey Ubben, another company direct, spent approximately $14 million to buy up 276,446 shares in the company.
The insiders aren’t the only bullish voices here. 5-star analyst Pavel Molchanov, from Raymond James, is impressed with Enviva’s environmental protection stance and this week upgraded the stock to a Strong Buy.
“With approximately 50% upside to our target price, plus the healthy and growing dividend, we think that the stock’s recent dislocation provides a compelling entry point. Today we are making an affirmative case for something that, to be candid, we never thought would become a point of contention: bioenergy is an environmentally and socially beneficial replacement for coal in power generation,” Molchanov opined.
These comments are complemented with an $80 price target that implies a one-year gain of ~48% in store for the shares. (To watch Molchanov’s track record, click here)
Overall, this small-cap ESG-oriented firm has picked up 5 analyst reviews in recent weeks, with a breakdown of 3 Buys and 2 Holds for a Moderate Buy consensus rating. The shares are priced at $54.16 and their $73.60 average price target suggests ~36% upside potential in the coming year. (See EVA stock forecast at TipRanks)
Dave & Buster’s Entertainment, Inc. (PLAY)
Now let’s shift our focus, from sustainable energy to consumer entertainment and leisure. This might not seem to be the best sector to look at, during a time of high inflation, tighter money, and consumer retrenchment, but the Dave & Buster’s sports bar and gaming chain has shown an upward trend in revenues, with consistent year-over-year gains, for the past two years. The company is well known for its entertainment venues, which are a combination of full-service restaurants, sports bars, and high-end gaming arcades.
The company recently reported results for Q2 of fiscal year 2022, the quarter ending on July 31 of this year, and showed a company record for revenue. The top line came in at $468.4 million, and was up 24% from the previous year’s quarter.
During the quarter, the company completed its acquisition of Main Even Entertainment. Main Even will now operate as a subsidiary of D&B, and each chain will retain its own branding. D&B will continue to cater to young adults, while Main Even locations will focus on families. The acquisition cost Dave & Buster’s $835 million, and was completed at the end of June.
Turning to the insider trade activity, we find that two Senior VPs, Les Lehner and Tony Wehner, have each made six-figure purchases of PLAY shares in the last two weeks. The first purchase, by Lehner, was for $398,651. He bought 12,154 shares and now holds $1.01 million worth of PLAY. Wehner, spent over $501,000 to buy 14,823 shares of the company, and how has a stake valued at 1.1 million.
The insiders’ confidence is echoed by analyst Andrew Strelzik, who covers this stock for BMO Capital and writes: “PLAY remains one of our favorite ideas on the high-end of our preferred barbell as our thesis remains unchanged. Strong/accelerating sales trends remain encouraging and risk/reward is attractive behind PLAY’s EBITDA potential, depressed multiple, and cash flow optionality. Our estimates now include Main Event…”
To this end, Strelzik rates the stock an Outperform (i.e. Buy), and his $66 price target suggests ~81% upside in the next 12 months. (To watch Strelzik’s track record, click here)
Overall, PLAY shares have a Moderate Buy from the Street consensus, based on 7 reviews that include 4 Buys and 3 Holds.
Overall, PLAY has a Moderate Buy rating from the analyst consensus, with 4 Buys and 3 Holds set in recent weeks. The stock is selling for $36.53, and at $49.33 the average price target suggests 35% upside potential. (See PLAY stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
